Simon Molica: So far in 2017, what we've seen is a continued strength in equity markets. The last two months have continued to be strong, very much akin with what we actually saw in Q4 last year as well. This whole growth reflationary trade is supporting the equity markets. Now, of course, there remains lots of uncertainty, as there ever is in the markets today. However, actually predicting these type of binary events, we think, is very difficult indeed and not something we necessarily pay too much attention to here at Morningstar. Instead, what we actually look to do is fundamental analysis of the markets to determine where they are on their valuation cycle.
Now if we look back to 2016 and the uncertainty and the outcomes of some of those uncertainties, it was very difficult to predict and most professionals got it wrong. And not only that, predicting how the market would behave after the uncertain outcome is also incredibly difficult.
Lots of professionals talked about Brexit leading to a UK recession. Well, as we know, so far we've had 2.6 GDP results and we are not in a recession today. Equally, with the results of Trump winning the U.S. election, there was an expectation that it would be bad for the equity market. Well, actually, instead there was a strong rising market for U.S. equities in particular.
So it does remain very uncertain today. And some of the issues around today, a continuation of what we've had over the last couple of years, European instability potentially, geopolitical risk as well, much more movement to divide, these are concerns, but these are binary events that we just can't predict.
Instead, as I've said, we focus very much on fundamental analysis. And today, where that's leading us is to consider the fixed income market to be very expensive, as we have done for a number of years so far, and equities to be closer to fair value and, if anything, becoming a little bit expensive with the continued strength that we've seen recently.
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